Leidos downgraded by J.P. Morgan as defense stocks face rocky earnings season
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Leidos downgraded to Neutral from Overweight on deteriorating earnings expectations.
60% confidenceJ.P. Morgan remains more cautious on Northrop Grumman because of its limited missile demand exposure and the F/A-XX loss.
60% confidenceLockheed Martin and Huntington Ingalls are preferred defense stocks heading into Q3 results, though both are rated Neutral.
60% confidenceLeidos' relatively low valuation is insufficient to justify an Overweight rating when other aerospace and defense stocks also offer substantial potential returns.
60% confidenceMost aerospace and defense companies should deliver solid Q3 results and express confidence in underlying demand, but good earnings may not reverse the sector's stock-market weakness.
60% confidencePrice target on Leidos lowered to $142 from $160, reflecting concerns about the Health business and potential further earnings disappointments.
60% confidenceJ.P. Morgan forecasts Boeing revenue of $108.46 billion in 2027 versus $96.31 billion in 2026, and adjusted free cash flow of about $5.55 billion versus $1.84 billion.
60% confidenceStandardAero maintained at Overweight with a $40 price target, citing opportunities in commercial engine maintenance and higher-margin component repair.
60% confidenceTransDigm could benefit from a stronger-than-expected initial fiscal 2027 outlook, and aftermarket demand should remain healthy.
60% confidenceHowmet, Honeywell Aerospace, Huntington Ingalls and Lockheed Martin are potential outperformers during Q3 earnings season.
60% confidenceHowmet's 2026 earnings estimates are expected to increase, and management is expected to remain confident about growth in aerospace and industrial gas turbines.
60% confidenceA&D stocks were weak in Q3 and sentiment is sour, even though the broader market is near an all-time high.
60% confidenceBloomberg consensus still anticipates about $2.45 billion in Leidos adjusted EBITDA for 2027, suggesting published expectations may be too optimistic.
60% confidenceExpectations for Honeywell Aerospace have fallen enough to limit additional downside, provided the company avoids an earnings miss.
60% confidenceBoeing maintained at Overweight with a $290 price target; the bank sees potential for improved 737 and 787 production, advancement of the 777X and stabilization of the defense business.
60% confidenceHuntington Ingalls could benefit from progress on CVN-79 milestones and a July submarine contract, supporting profitability and cash flow expectations through the rest of 2026.
60% confidenceThe preferred approach is to focus on companies with opportunities for upward earnings revisions or sufficiently depressed expectations to support a rebound.
60% confidenceExpectations for Boeing's 2027 cash flow have weakened, and uncertainty about aircraft production rates has contributed to investor caution.
60% confidenceLeidos' adjusted EBITDA margin is expected to decline to 11.8% from 13.3%, largely because Health segment margins are projected to fall to 16% from 22%.
60% confidenceStagnant global air traffic could eventually reduce maintenance demand, but an engine maintenance backlog should support aerospace aftermarket suppliers for several more quarters.
60% confidenceJ.P. Morgan forecasts Leidos' 2027 revenue at about $18.1 billion versus $18.35 billion in 2026, and adjusted EBITDA falling to $2.14 billion from $2.45 billion.
60% confidenceJ.P. Morgan expects continued execution improvements and significant backlog growth from missile contracts at Lockheed Martin.
60% confidenceElection-related uncertainty may dissipate after Nov. 3, but fiscal 2027 federal budget negotiations may continue well beyond Election Day. Rising government borrowing costs are a longer-term concern for discretionary defense spending.
60% confidence